page last updated 10-5-2013

Trying to Think outside the BossBy Phil Murphy

During the Spanish Civil War (1936-39) a twenty-one-year-old Basque seminarian, Don Jose Maria Arizmendiarrieta, narrowly escaped execution by the Franco forces. The young man, blind in one eye from a childhood accident and declared unfit for military service, had written for a Basque newspaper. This proved perilous under Generalissimo Francisco Franco, who considered speaking Basque an act of treason. Legend has it that a bureaucratic error saved Arzimendiarrieta (Arizmendi) from the firing squad. Following his short stay in prison, Arizmendi continued his studies in Belgium after ordination. In 1941 his bishop transferred him to Mondragón, a town of about 20,000 in the Basque region of Spain. The scholarly priest at first did not impress Mondragón’s underemployed and impoverished residents: they found his halting, vision-impaired readings hard to understand and his sermons abstract and uninspiring. They asked their bishop to replace him.

But Father Arizmendi was committed to the dignity and rights of workers and to the future of their children. His parishioners discovered he was an effective and persuasive communicator in small groups and classes. Described by a former student as an idealist with a practical bent, Arizmendi established a technical school in Mondragón. Beginning with about twenty students, the new school taught manufacturing skills and a business philosophy in which the rights and dignity of workers were paramount. Education and the sovereignty of labor were central to Arizmendi’s strategy of lifting his parishioners out of poverty. Well read in social theory and the labor encyclicals of Leo XIII and Pius the XI, Arizmendi encouraged a business model in which owner/workers participated in crucial management decisions, where the differences in pay between the lowest level worker and the highest paid manager stayed within reasonable ratios, where capital was considered instrumental and subordinate rather than a supreme and controlling force, where democratic participation trumped top-down decision making, and where firing workers to boost the bottom line was against company policy.

Today, the Arizmendi-inspired Mondragón Cooperative Corporation is the seventh largest private business in Spain. Its network of cooperatives has more than $35 billion in total assets and employs about 85,000 people, 85% of whom are worker/owners. Mondragón’s cooperatives manufacture consumer goods, including household appliances, furniture, bicycles and exercise and camping equipment; produce industrial equipment from forklift trucks to electric transformers to industrial refrigeration equipment, casting machinery and auto parts; operate some 2,400 retail outlets including supermarkets, gas stations, sporting goods and perfume stores; and run the University of Mondragón, which offers its 3,500 students courses in engineering, business, humanities and education, and culinary science. Until I came on Arizmendi’s story and learned of Mondragón, I held a caricature of cooperatives as places where shaggy idealists sold organic foods to their members in stores that looked like old Safeways but without the gloss of modern marketing. The thought of cooperatives shedding any light on the troubled US economy never crossed my mind.

Richard Wolff, Professor of Economics Emeritus, University of Massachusetts, Amherst, documents the broad economic problem: since the late 1970s, the US has shifted from a labor shortage to a labor surplus caused by automation, outsourcing, and both men and women competing for jobs in the workforce. Marshaling statistics from the Bureau of Labor, Wolff shows the efficiency of workers on an upward arc while their buying power remains stagnant over the past forty years. My wife and I were both unemployed after we married in 1972; that would be a cause for panic now. Neither of us was worried then, however. After all, I had my resume out and had placed a solid second in three or four interviews. We thought something would come up, and it did. Today, similar circumstances send those in their early thirties boomeranging back to their parents’ households. According to Wolff, democracy in the US stops at the workplace, where even nonprofit organizations serving high social purposes will use simple supply-and-demand economics to justify sudden and substantial layoffs.

The stagnant earning power of middle-class Americans pales in comparison with the life-and-death struggles of the poor worldwide, but it was enough, together with Arizmendi’s Mondragón story, to get me to fly to Philadelphia to attend the Eastern Conference on Workplace Democracy held on the campus of Drexel University in late July. I was in search of answers beyond the nostrums of the right or left. My interest in co-ops was barely two-months old. From time-to-time, as I picked up co-op brochures at the dozen of table-and-chair conference exhibits at Drexel’s James Creese Student Center, I wondered what I was doing there. So might have some in the crowd, whose average age I reckoned at about 40. When asked, I would say, “Out of personal interest and to write an article for a friend of mine who runs a nonprofit organization in Watsonville, California.” That was the truth, and that was my cover.

Most presentations and breakout-discussion groups I attended were practical: how to get financing when most US lenders don’t understand the cooperative business model; how to teach US workers, used to the anonymity and powerlessness of 9:00-to-5:00 cubicle life or foreman- driven physical labor, to accept owner risk and responsibility and financial buy-in. Nevertheless, cooperative success stories abounded: Home Care Associates of Philadelphia now has 260 home-caregivers, most of them worker/owners, trained not only in homecare skills but in sharing profits, risking losses and making major management decisions. Real Pickles in Greenfield, Massachusetts, a food-processor co-op with eleven fermented food products, purchases 250,000 pounds of local produce annually and has sales increasing 25% a year, giving its local economy a double boost; Chicago’s New Era Windows, among the most publicized of US co-ops, rose from the ashes of two successive efforts by corporate owners to disband the business and fire its employees. The workers staged sit-ins, demanded justice and, in 2012, bought and reorganized the business as a cooperative, moving the business to a less expensive manufacturing site.

Many US cooperatives, including the San Francisco Bay Area’s six Arizmendi bakeries, named after Mondragon Cooperative Corporation’s spiritual father, have at least trace elements of the Mondragon model in their DNA. Despite other successful cooperatives—the Emilia-Romagna Region of Northern Italy has some 3.25 million cooperative workers—the dominant co-operative template for many conference participants was Mondragón’s list of business principles:

Open Admission: No religious, racial, or sexual discrimination allowed.Democratic Organization: From janitor to manager, one member, one vote regarding substantive decisionsSovereignty of Labor: Create and preserve jobs and share profits equitablyInstrumental and Subordinate Nature of Capital: Limit the rate-of-return on capital investments by formula (currently capped at 11%)Participatory management: Give worker-owners the training, information, and structures needed to participate in decisions that affect themPayment Solidarity: Historically, top executives earned no more than three times the lowest paid worker; currently, management takes a 30% deduction from the European market rate to show solidarityInter-cooperation: Pool profits and resources to gain efficiency of scale, create joint ventures, fund new cooperatives, and deal with market downturnsSocial Transformation: Use up to 10% of net surplus to create new jobs, support community development and provide social services to the workersUniversality: Work internationally for peace, justice and economic progress with other cooperative movementsEducation: Continue Father Arizmendi’s commitment to education as the cornerstone of democratized power. (Mondragón University carries on the mission of the tiny technical school he started in 1943, and is the main source of managers and skilled workers for its cooperatives.)

Mondragón-influenced cooperatives from New England, Wisconsin, the Pacific Northwest, and California were well represented at the conference. But cooperatives have also recently taken root in more conservative soil. Cleveland’s Evergreen cooperatives include Evergreen Laundry, an industrial strength, heavily equipped enterprise employing about 30 worker/owners; Evergreen Energy Solutions, whose fair-weather solar panel enterprise and foul-weather insulation business keep its worker/owners busy year round; and Green City Grocers, a 3.25-acre leafy greens, hydroponic greenhouse in the Central neighborhood of Cleveland. Following the Mondragón model, Evergreen seeks to create good quality jobs, anchor its businesses to large stable enterprises--the Cleveland Clinic is one of its customers—finance additional job creation, stabilize and transform the neighborhoods where they are located and where their workers live, and create green jobs in urban settings. According to Shift Change: Putting Democracy to Work, a documentary film screened at the conference, Evergreen is eager to encourage and fund more co-op start-ups in Cleveland. And, the Ohio Employee Ownership Center of Ken State University has been involved in those start-ups as well as many others in the Rustbelt.

The San Francisco based US Federation of Worker Cooperatives’ website estimates there are 300 democratic workplaces in the United States, employing over 3,500 people and generating over $400 million in annual revenues, adding that the “number of workers cooperatives has grown steadily over the past 20 years.” Double the $400 million estimate and you still have a number that is barely detectible in the US economy. That could change. Mondragón, having created its own source of financing, with Fr. Arizmendi’s trusting parishioners’ opening accounts at his credit union, Caja Laboral, aggressively promoted and funded over a hundred new co-ops during 1959-82 only of few of which failed according to George Cheney, Professor of Communication at Kent State University, and author of a meticulously researched study of Mondragón, Values at Work (1999). Could something of the same happen in the US? A few funding sources were represented at the conference: the Cooperative Fund of New England, a revolving loan fund supporting new cooperatives; the Minneapolis-based Northcountry Cooperative Development Fund, which has provided over $35 million of cooperative financing since 1978; the Northwest Cooperative Development Center in Olympia Washington. Traditionally, at least partial co-op funding has come from the workers themselves as part of the ritual of becoming worker/owners, each of whom buys one-share, often by deferring a portion of their pay or borrowing from family.

The conference had cards promoting What Then Must We do? Straight Talk About the Next American Revolution, a survey of cooperatives and other economic strategies by Gar Alperovitz. On the back side of the card, Alperovitz, Professor of Political Economy at the University of Maryland, listed ways individuals could improve the economy right now: using credit unions, insisting on ethical investment, joining consumer cooperatives, and encouraging businesses to convert to co-ops. In a fit of activism, I bought a conference T-shirt, emblazoned “Think Outside the Boss. …ask me how!”

I heard no one at the conference say that co-ops were free of stresses and strains, or that the much-admired Mondragón Cooperative Corporation had lived up to its founding principles at all times. Professor Cheney documents the fault lines that appeared in Mondragón’s founding values as it grew exponentially and faced international competition. He quotes old-timers complaining in the 1990s about Mondragón’s younger workers being more interested in their careers than in worker solidarity and workplace democracy. Even so, he writes, “Many observers consider Mondragón to be a model system.” He quotes Canadian futurist Guy Dauncey (1997): “Mondragón has proved beyond question that co-operative ownership, co-operative banking and co-operative networking between businesses bring a level of success, stability and employment that can be matched by very few privately owned companies.” Joining Professor Cheney for breakfast on the last day of the conference in Drexel’s James Creese Student Center cafeteria, I found him encouraged by what he had seen and heard. “There are a lot of young people here,” he said. “That really gives me hope.” He added: “And, we are seeing a revival of interest and activity in cooperatives, from Mondragón to Mississippi; and in many more cities and regions around the world.”